Putting mortgage rate movements into perspective

Mortgage rate websites like HSH.com focus on the daily, weekly, even monthly movement of mortgage rates. But how do these weekly and monthly fluctuations in mortgage rates translate into higher or lower monthly payments, and just how much of a monetary difference are we talking about?

What does “mortgage rates moved up or down by a few basis points” really mean to the borrower on the street who is debating whether it’s time to lock in that mortgage rate?

What is a “basis point”?

A basis point is 1/100 of a percentage point. For example, if mortgage rates rose 10 basis points, mortgage rates rose by 0.10 percent.

While we constantly advise borrowers not to “play the mortgage rate waiting game” -- waiting for rates to fall just a little bit lower before you lock in can be a slippery slope -- since mortgage rates always rise faster than they fall. So again, how do you know if that mortgage rate that “just edged upward” is really going to impact your affordability?

Over a month’s worth of rate movements

We’re going to take a look at mortgage rates over the past six weeks to really see how the fluctuations in mortgage rates affect your immediate and long-term mortgage costs.

Using a mortgage amount of $250,000 and the weekly average rate for conforming 30-year fixed-rate mortgages, we will show you how your costs change when mortgage rates change:

Week ending date

Mortgage rate

Monthly payment

Total interest paid

Total payments

5/02/14

4.38%

$1,248.95

$199,622.19

$449,622.19

5/9/14

4.30%

$1,237.18

$195,384.30

$445,384.30

5/16/14

4.27%

$1,232.78

$193,800.31

$443,800.31

5/23/14

4.20%

$1,222.54

$190,115.46

$440,115.46

5/30/14

4.18%

$1,219.63

$189,065.51

$439,065.51

6/06/14

4.21%

$1,224.00

$190,640.91

$440,640.91

As you can see, weekly fluctuations in mortgage rates don’t tend to affect the monthly payment to a great degree. When mortgage rates fell from 4.38 percent to 4.30 percent in the beginning of May, perspective borrowers would have saved $11.77 with that lower rate.

The savings, however, become a bit more dramatic when you look at the money you save on interest payments and total costs. During that same period, a mortgage rate of 4.30 percent compared to 4.38 percent would have saved you $4,237.89 in total interest.

Also keep in mind that these payment fluctuations are far more substantial when the mortgage amount is higher.

Highs and lows

During the six-week period we examined above, the low point for rates was 4.18 percent and the high point was 4.38 percent. The different in monthly payment between those two interest rates was just over $29 and the different in interest cost was $10,557.

Mortgage rates: Just one component

Keith Gumbinger, vice president of HSH.com, says borrowers shouldn’t get too hung up on weekly fluctuations since an interest rate is just one component of a mortgage transaction. There are so many factors that have to fall into place at the same time, your mortgage rate being just one.

“I don’t think you’re going to find anyone who says ‘it’s going to cost me $10,000 more over the course of 30 years so I’m not going to buy.’ People don’t think like that,” he says.

“If you’re actively shopping for a mortgage, mortgage rate dips are merely a bonus, and a small weekly rate increase should not be enough to change your transaction.”

If you save $29 a month thanks to a dip in rates, that’s a savings of $348 a year—enough to cover your cable bill for a few months, Gumbinger explains.

What’s the point?

The point here is that active mortgage shoppers should have a range of mortgage rates in mind that align with their affordability. Once rates fall into that range, it’s time to move forward. And if mortgage rates happen to fall while you’re at it, congratulations, that’s a bonus.

40 percent of survey respondents hadn't refinanced or prepaid a mortgage, saved more for retirement, paid off credit-card debt or tried to boost a credit score in 2014, and 30 percent had no intention of taking those actions in 2015.